No 658: Effects of Increased Demand for Biofuels: A Dynamic Model of the Swedish Forest Sector

Mattias Ankarhem ()

Abstract: In this paper, we estimate the dynamic effects on the
forest sector of an increased demand for biofuels. This is done by
developing a partial adjustment model of the forest sector that enables
short, intermediate, and long run price elasticities to be estimated. It is
relevant to study the effects of increased demand for biofuels as the
Swedish government has committed to an energy policy that is likely to
further increase the use of renewable resources in the Swedish energy
system. Four subsectors are included in the model: the forest owners, who
supply sawtimber, pulpwood and forest fuels; the sawmills which demand
sawtimber; the pulp and paper industry which demands pulpwood; and the
energy industry which demands forest fuels. The results show that the short
run elasticities are fairly consistent with earlier studies and that
sluggish adjustment in the capital stock is important in determining the
short and intermediate run responses. Simulation shows that an increase in
the demand for forest fuels has a positive effect on the equilibrium price
of all the three types of wood, and a negative effect on the equilibrium
quantities of sawtimber and pulpwood.

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